We stuck our toe in the water this afternoon, making two trades. We sold put options on both Adobe (ADBE) and DELL (DELL.) The links in the previous sentence will take you to all of our previous posts on those names. The put options will require us to buy shares of the stock at about the current price if they decline further before the option expires. We are kind of hoping the puts will be exercised against us.
Our rationale was pretty similar for both purchases. Both are trading at the low end of their historic P/E range, as evidenced by the charts below. Also, in each case, we believe there could be a significant upgrade cycle in the near future, a conclusion we reach based on comments on other companies conference calls.

For Adobe, we refer to the following comment from Apple’s recent conference call:

We believe that many of our creative professional customers have delayed purchases as they await new Intel-based Mac desktops, universal applications, or both.

In terms of what we saw across the quarter, once we announced the MacBook and began shipping it, we saw a very robust consumer and higher education demand. In the pro markets, we were slow and we were slow because we believe that customers are delaying purchases, waiting on a PowerMac with an Intel chip in it, and in some cases waiting for applications, such as Adobe’s Creative Suite.

Adobe’s version of Creative Suite, which includes PhotoShop and other industry-leading applications, will be upgraded and optimized to run on the Intel-based Macs in Spring, 2007. We believe it will spur a large increase in sales for both Apple and Adobe.

Our core businesses turned in an excellent performance with double-digit bookings growth in both the quarter and full year and unearned revenue finished the year growing 19%, which is a tremendous performance. We saw broad-based strength from business customers for not only our core Windows Office and Server products but also increased demand for Communications Products and Services.

The strong bookings were attributed to the upcoming major product releases of Windows Vista and Office 2007. We have said on a number of occasions that a strong upgrade cycle for Vista/Office could drive growth throughout the tech sector. Microsoft’s strong bookings are a sign that the end of the tech pain (or at least a few months of alleviation from it) could be near.

William Trent currently has a short position in put options related to Office Depot (ODP).